What is a Franchise? Advantages and Disadvantages of a Franchise

What is a Franchise? Advantages and Disadvantages of a Franchise

If you’re considering starting a business, you’re probably wondering whether to start fresh or purchase a franchise.

Today, India is recognized for such startups, and many entrepreneurs are creating their businesses or beginning Frenchies in India. When you can start a new business, you can establish your own set of rules and laws for running your company and advertising your items. However, when purchasing well-known brand Frenchies, you must be aware of their positive and negative characteristics.

What is a Franchise?

The first thing we must know is what the term “franchise” means! When entrepreneurs wish to use a well-known brand’s knowledge, trademark, and products, they must follow the procedure for getting a license from the owners. The entrepreneurs are ready to launch a franchise if the owner provides them permission to use their products, name, techniques, etc.

The franchisors are the people who give the entrepreneur the license. Franchisees are those who are granted permission or a license to start a franchise. In short, they become partners.

However, when operating a franchise business, a franchisee must pay a license fee to the franchisor to use the franchisor’s name or products.

When companies want to increase their profitability or brand awareness, it opens a franchise with several startups in various areas. As a result, their brand is well-known all over the world. However, they must share their knowledge and products with franchisees.

However, This contract is only temporary and for a limited duration. Typically, this agreement is accepted for between 5 and 30 years.

If you’re curious about how and where the franchise concept began, here’s a summary,

Franchises were first introduced in Germany and later extended throughout the United States. The first food and hospitality franchises were created in the 1920s and 1930s. In 1925, A & W Root Beer began franchising. More than 785,000 franchises have been formed throughout the United States.

There are Well-known Franchises such as McDonald’s, Taco Bell, Dairy Queen, etc.

Regulations and Basics for Franchise

If you are considering owning a franchise, you should be aware of the basics of franchises as well as their rules and regulations.

Foreign industries were able to invest easily in India with the implementation of the Foreign Exchange Management Act in 1999. This resulted in the evolution of franchising in India.

Franchise laws are typically complex and vary depending on the franchisor. However, to form the contract, most franchisees and franchisors follow three payment categories.

Entrepreneurs must first obtain rights or control over the selling products from the franchisor, as well as pay the upfront fees for the trademark.

Following that, in the second phase, they must provide training, equipment, and business advice to achieve success after getting payment from the franchise owner.

Finally, after completing all procedures and formalities, franchisees earn royalties, while franchisors receive percentages of the franchisee’s ongoing sales.

Also Read: Multi-Company ERP Software: Pros And Cons

Advantages of Franchise

There are several advantages to owning a franchise, but here are a few of the most important ones that might help an entrepreneur decide whether or not to buy a brand’s royalty.

1. Less Expense 

When a company wants to start a business, it needs money to buy materials, equipment, and advertising, among other things. They can do so by getting a bank loan and establishing their business.

However, they face significant costs while launching their businesses. On the other, franchisees receive equipment from the franchisor at the start of the franchise and are already familiar with the brand. In other words, they start their businesses with less money. And this is one of the benefits of spreading the franchise’s success over the world.

2. Newbie get Local businesses Knowledge 

If entrepreneurs wish to start their own business, they must first learn about the market. When they buy the royalty of a well-known brand, however, franchisors assist the franchisee with advance tips and training.

As a result, newcomers might gain an understanding of the local market as well as gain well-known experiences. They also gain the benefits of working with an experienced team to expand their businesses.

3. Minimize Operating cost

When a newbie receives royalties from established enterprises, they have the greatest opportunity to learn the fundamentals of the market. As a result, there’s a good chance that by connecting the popular brand, they will also be able to save a lot of money on operating costs.

4. Branding 

Any company that wants to grow sales must invest in branding. The owner can use the money to advertise the products and raise brand awareness to help build the business.

However, any entrepreneur who can connect with the franchise has already established branding. That is why they haven’t spent money on branding.

5. Training and technique 

Training and technique are two of the franchise’s main benefits. Franchisors provide training and techniques to help franchisees manage their businesses in a competitive market while connecting with a certain brand.

These techniques assist new businesses in becoming more aware of the market. Franchisees learn about the competition and how to grow and attract customers while offering the greatest customer service while receiving sufficient training.

6. Minimize the risk 

When a new business is created in a competitive market, it runs the risk of losing money. However, they work under the supervision of professional team leaders while connecting with businesses.

As a result, when new entrepreneurs develop franchises, they face a lower risk than when they start a new business.

7. Built-in Customer awareness

If you buy a franchise for a well-known brand, you’ll find that many customers only buy or prefer the items of such a brand. As a result, you’ll have a built-in customer. It’s also possible that you’ll meet customers who are aware of the products but are unable to purchase them due to their distant area. However, now that they’ve located the Frenchies in their area, they’re ready to make a purchase.

Disadvantages 

Every coin has two sides, and if you find the advantages, you will also find the drawbacks. Furthermore, you must be aware of the disadvantages while granting royalties.

1. Restriction and Regulation 

When one company can obtain the royalties of another’s branding, it must follow the brand’s guidelines. Such as the location they will use, operation hours, which holidays they will take, pricing, promotion, marketing, etc.

As a result, franchisees must follow the regulations set on by the Frenchouser. As a result, firms must give up their freedom to receive royalties.

2. Brand control

Frenchouser must share ideas, techniques, experiences, and equipment with franchisees while selling the brand’s royalties. As a result, the franchiser must share brand control. And because of one person’s blunder, the entire brand is forced to face a finance cost.

3. Initial Investment 

When a reputable brand owner gives brand royalties to other entrepreneurs, they must observe the law and enter into a proper agreement. They must contact a franchise expert to create a flawless contract for making the agreement and securing their branding. Both the franchisee and the franchisor must invest time and money to complete the procedure.

4. Negative publicity 

If one brand owner receives poor publicity, it has an impact on the entire branding. That is one of the Frenchies’ major drawbacks. As a result, before selling royalties, franchisors must investigate the franchisee’s background.

Recorded for you: What’s The Difference Between ERP And Accounting Software?

Conclusion 

Numerous franchise businesses are operating around the world today. They also use multi-company ERP (Enterprise Resource Planning) software to manage each organization. ERP’s cloud-based technology enables the business owner to keep track of sales operations from a single location.

Contact us today and schedule a FREE DEMO with our ERP experts.

LEAVE A COMMENT

14 + 5 =

Request a Free Demo